Crop-model informed economic analysis of nitrogen tax effects on food production

Agricultural nitrogen (N) pollution poses major challenges for sustainable food systems, yet policy assessments often neglect feedbacks between biophysical crop responses and economic market dynamics. We couple the process-based global crop model LPJmL with the spatially explicit agricultural trade model SIMPLE-G using crop- and location-specific nitrogen response functions for yields and N leaching derived from extensive LPJmL simulations. This framework is used to assess the effects of a regional N tax targeting highly polluting production systems while accounting for market-mediated spillover effects.

The tax substantially reduces N pollution in targeted regions with comparatively small yield losses, reflecting the non-linear response of leaching to fertilizer inputs. Lower fertilizer demand in taxed regions reduces global fertilizer prices, inducing yield-enhancing input increases elsewhere that raise production with limited additional pollution. At the global scale, total fertilizer use declines and food prices may decrease under inelastic fertilizer supply assumptions, consistent with empirical evidence, while production remains largely stable. Although targeted farmers experience income and production losses, non-targeted regions can benefit from higher output and incomes. A comparison with a uniform, economy‑wide N tax shows that a location-specific targeted tax achieves similar pollution reductions at substantially lower economic cost. The targeted tax is based on a universal, generalizable, and easily applicable formula. Our results demonstrate the importance of integrating crop-model-informed response functions into economic analyses and challenge the notion that environmental taxation necessarily increases food prices.